First I wanted to compliment the developers of this product. It is much easier using this rather than editing, parsing and browsing. Life is much simpler.

Now to my question:

How can I get the XML parser that parses the XSL doc to not complain about the tags. I had to remove them all to get it to display. Without them, some of the words on the line look very bunched together.

&nbsp; is not a built-in XML attribute. So the XML parser does not understand it. There are two ways around it. You can either output the character reference &#160; (the nbsp character) directly in your xsl templates, or you can add the following to the very top of your xsl stylesheet before the xsl:stylesheet tag (use xsl source view):

(!DOCTYPE xsl:stylesheet [
(!ENTITY nbsp "&#160;")
])

Note that '(' means ''...
This will add an XML entity declaration to your xsl stylesheet. When the XML parser parses your stylesheet, it will replace all &nbsp; references with the right character.